Automobile Industry in India

July, 2013

Introduction

The favourable Indian market conditions are acting as a catalyst for luxury and premium carmakers, which are receiving impetus from new launches. The top-end carmakers have posted double-digit growth for the quarter ended June 30, 2013, with firms like Honda at 45 per cent and Audi recording 28.8 per cent, besides others.

India is emerging as an export hub for sports utility vehicles (SUVs). Global automobile majors are looking to leverage India's cost-competitive manufacturing practices and are assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia too. India is also one of the key markets for hybrid and electric medium-heavy-duty trucks and buses.

Ford Motor Company is staking big on Asia-Pacific (APAC) markets, especially India and China. "Ford will export Figo and EcoSport models out of India. The Indian plants would support the market here, as well as other global markets," said Mr Alan Mulally, Chief Executive Officer, Ford.

Key Statistics

The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers Association of India (ACMA).

Passenger car sales stood at 1.89 million units in 2012-13. Additionally, share of luxury cars to the total passenger car market of India is expected to increase to four per cent by 2020. The total number of passenger cars in India is likely to touch around 8 million units by 2020, as per Mr Boris Fitz, Director, Sales and Network Development, Mercedes-Benz India.

The industry produced 1.74 million vehicles in May 2013. The export of passenger vehicles and three- wheelers grew by 7.34 percent and 26.53 percent respectively during the April-May 2013, as per data released by Society of Indian Automobile Manufacturers’ (SIAM).

Furthermore, the amount of cumulative FDI inflow into the Indian automobile industry during April 2000 to April 2013 was worth US$ 8.32 million, amounting to 4 per cent of the total FDI inflows (in terms of US$), as per data published by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce.

Major Developments & Investments

Nissan Motor India Pvt Ltd is expecting to sell over 60 per cent more units this year on the back of the launch of its upgraded small car - Nissan Micra

Daimler India Commercial Vehicles (DICV) exported its first lot of 64 Fuso trucks manufactured at its Oragadam plant in Chennai

Mahindra USA, a subsidiary of Mahindra and Mahindra (M&M), will set up an assembly and distribution centre, expanding one of the four tractor facilities in North America, by January 2014

The Japan-based automobile manufacturer Isuzu Motors' local subsidiary Isuzu Motors India has entered into an agreement with Hindustan Motors (HM) for contract manufacturing of Isuzu SUVs and pickup trucks

A year after introducing the popular 'MINI' range of cars in India, luxury car maker BMW has started local production of 'MINI Countryman' at its facility in Chennai

New Holland Fiat India plans to invest Rs 1,100 crore (US$ 184.56 million) to set up a new greenfield plant in Maharashtra and also to increase its tractor manufacturing capacity by 50 per cent in the next three years

Hero MotoCorp has bought a 49.2 per cent stake in its US-based technology partner Erik Buell Racing (EBR) for US$ 25 million. This is Hero MotoCorp's first-ever equity purchase in an overseas company. Also, Hero MotoCorp has entered into the African continent with launch of its brand and products in Kenya, where it has also set up an assembly unit. The company has also partnered with Ryce East Africa to sell its two-wheelers in the country

Daimler is developing its Indian commercial vehicle operations as an export hub. Daimler India Commercial Vehicles (DICV) will export locally assembled trucks from the conglomerate's Mitsubishi Fuso range in 15 markets in Asia and Africa

With India becoming a magnet for car makers, Kochi in particular has emerged as India's strongest growing market for luxury car brands like BMW, Audi, Mercedes and Jaguar Land Rover on back of rising value of spices and rubber and ever-increasing inflows from non-resident Keralites. Kerala now accounts for 10 per cent of India's luxury car sales.

Government Initiatives

The Government of India plans to introduce fuel-efficiency ratings for automobiles to encourage sale of cars that consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas, Government of India.

The Union Budget 2013-14 announced by Mr P Chidambaram, the Union Finance Minister, Government of India, in the Parliament on February 28, 2013, had a few add-ons for the industry. The analysis by Deloitte on the Union Budget highlighted the following:

The period of concession available for specified part of electric and hybrid vehicles till April 2013 has been extended upto March 31, 2015

The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles, yachts and similar vessels was increased. The duty was raised from 75 percent to 100 percent on Cars / motor vehicles (irrespective of engine capacity) with CIF value more than US$ 40,000; from 60 percent to 75 percent on motorcycles with engine capacity of 800cc or more and on yachts and similar vessels from 10 percent to 25 percent

In addition, an increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine capacity exceeding 1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs registered solely for taxi purposes

An exemption from BCD on lithium ion automotive battery for manufacture of lithium ion battery packs for supply to manufacturers of hybrid and electric vehicles

The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13 per cent

Moreover, the Government of India allows 100 per cent foreign direct investment (FDI) in the automotive industry through automatic route. The Government also plans to accelerate the supply of electric vehicles over the next eight years. It is expected that there will be a demand for 5-7 million electricity-operated vehicles by 2020.

The contribution of automotive sector in the gross domestic product (GDP) is expected to double, reaching a turnover worth US$ 145 billion in 2016, with special focus on export of small cars, MUVs, two & three wheelers and auto components, as per the Automotive Mission Plan (AMP) 2006-2016.

Road Ahead

Global and Indian manufacturers are focussing their efforts to develop innovative products, technologies and supply chains in the industry.

Car makers are launching a slew of car models, mostly compact SUVs, in the coming months. The automobile body SIAM expects the launches to be able to brighten the market.

Lastly, the vision of AMP 2006-2016 sees India, “to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

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